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BALTIMORE (Stockpickr) -- U.S. markets "melted up" yesterday, tacking onto the already impressive performance that stocks have turned out over the course of 2013. And while early trading this morning is pointing toward a correction, I'm using the term loosely here.
As I write, the broad market is sitting almost 15% higher than it was at the start of the year.
A lot of Mr. Market's upward momentum has to do with earnings season. While earnings growth was pretty standard in the first quarter, 72% of S&P 500 components have beaten Wall Street analysts' expectations. That's a pretty strong signal that investors are still uncomfortable about more upside in stocks -- and it's a bullish contrarian signal for the S&P's run this quarter.
Meanwhile, some big trades are heating up this week. That's why, today, we'll take a technical look at five big stocks worth trading in May.
If you're new to technical analysis, here's the executive summary.
Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.
Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at five high-volume stocks to trade for gains.
First up is Ford (F), the Detroit automaker that's been a bit of a mixed bag in 2013. While Ford has seen its share price rise by close to 10% this year, the firm has really spent most of the last four months consolidating sideways -- not exactly taking part in the rally that's been taking shape elsewhere in the market. But shares could be due for higher ground in May.
That's because Ford is testing a breakout above its $14 level this week. Ford has been forming a longer-term rounding bottom pattern, a setup that indicates a gradual shift in control from sellers to buyers; the buy signal comes when Ford is able to clear the top of the range at $14. While shares did move through that level this week, we're still close enough that I'd recommend waiting for better confirmation before diving in. A print above $14.30 should be sufficient.
Momentum backs up the upside thesis for Ford 14-day RSI has started on a short-term uptrend since early April. Because momentum is a leading indicator of price, that's a bullish signal. If you buy, keep a tight stop in place.
Caterpillar (CAT) is staging a textbook breakout in May. Shares of heavy equipment maker haven't exactly been kind to investors year-to-date; CAT has barely broken even during a time when the broad market has been in a historic rally. But a textbook breakout should change that.
CAT started forming an inverse head and shoulders pattern back in early April. The inverse head and shoulders is formed by two swing lows that bottom out around the same level (the shoulders), separated by a lower low called the head; the buy signal comes on the breakout above the pattern's "neckline" level, which was just below $86 for CAT. That puts this stock's upside target right around $92.
Even though CAT has nearly hit its upside target already (the post-breakout buying has been very quick), the longer-term implication for investors is a break of the downtrend that had been haranguing shares this year. Now, with that downtrend broken, CAT should have more room to move higher. I'd just expect some consolidation first.
There may be a less conspicuous reversal taking shape over at JPMorgan Chase (JPM). While JPM spent most of the first quarter rallying hard alongside the rest of the financial sector, the stock's orderly uptrend broke back in March, and it's been trading lower (however slightly) for the last couple of months. Yesterday's move through the top of JPM's downtrending channel could change that.
If JPMorgan's price action could be described in a word, it's "orderly." Shares rallied off of their November lows in a tightly bound channel, and they've given back some of those gains in a similar channel. You don't exactly have to be an expert technical analyst to see what's going on here. If JPM can confirm its breakout above that upper bound today, we've got a buy signal in this big bank.
A momentum uptrend adds some extra confidence to this trade. A short-term uptrend in RSI hints that the breakout has some staying power. If you decide to jump in here, I'd recommend keeping a protective stop just below the 50-day moving average.
JPMorgan was also featured recently in "5 Stocks Insiders Are Scooping Up."
Pharmaceutical giant Pfizer (PFE) has been an orderly trade as well in 2013. Shares of the $206 billion drug maker have climbed 14.5% year-to-date, on top of a hefty 3.34% dividend yield. Despite a recent reversal in Pfizer's price action, traders are looking at a buying opportunity from here.
Pfizer, like JPMorgan, spent most of the last couple of quarters trading within a tight uptrending channel. But buyers got overzealous in mid-April, and shares got overbought by moving through the top of the price channel. Now we're seeing a reversion to the mean for PFE as shares drop back to support at the channel's lower trendline. More specifically, the mean that PFE is reverting to is the 50-day moving average, which has been a stellar proxy for uptrending support and is, in fact, literally a mean.
The best time to buy a stock in an uptrend is on a bounce off of support, so PFE's test of support this week presents an attractive buying opportunity. That said, it's critical to wait for the bounce we want to see that Pfizer can still catch a bid here. I'd recommend taking a long position on this stock's next white-bar day.
Finally, we're revisiting Apple (AAPL) this week. Last week, Apple was just starting to break out above it's the downtrending resistance line that's held shares lower for months. And sure enough, in the sessions that have followed, Apple has quietly made a move to test its last swing high at $466.
That price is the nearest important resistance level for the stock; traders should treat a move through $466 as a buy signal. If Apple's downtrend is truly broken, we'll want to see the stock make a series of higher lows and higher highs. Now, the $436 billion firm is finally in a position where it can start to do that. This week's price action could get interesting for Apple bulls.
I'm still recommending buyers keep a protective stop on the other side of the 50-day moving average; it should start looking like a decent proxy for support when a move through $466 happens.
To see this week's trades in action, check out this week's Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji